Do I Really Need Replacement Cost Home Insurance?

According to a 2008 survey by Marshall & Swift/Boeckh (MSB), 64 percent of U.S. homes are under-valued for insurance purposes. Of those, the average homeowner has enough insurance to rebuild only about 81 percent of his or her dwelling. The best way to avoid finding out your home insurance has gaps in coverage is to review your existing policy and compare it to others available before disaster strikes.

Some homeowners discover their insurance is inadequate because they opted for the cheaper actual cash value coverage option rather than replacement cost. Actual cash value coverage takes depreciation into account and will only pay the cost of what your home is worth at the time of loss – not what it costs to rebuild the entire structure. While real estate prices have failed to fully recover in many regions, building costs have continued to surge. Your home may only receive serious offers around $150,000 if you put it up for sale today, but if it’s destroyed by fire tomorrow, it may cost you $190,000 to rebuild.

You can find out how much it would cost to rebuild your home using inexpensive online calculators available by some real estate websites and other property management firms. For a more accurate figure, however, it may be wise to invest in a professional assessment. The total cost of replacing your home from foundation to roof will give you an idea of how much insurance you should carry. Many homeowners make the mistake of only carrying enough insurance to cover their mortgage. If you put a significant amount down on the loan, or have been making payments for several years, your policy may need a serious update.

The most comprehensive type of homeowners insurance is called “guaranteed replacement cost,” which will insure your home is replaced, no matter how much more it costs to rebuild compared to what your home is worth today. This form of insurance is a bit more expensive, but if it’s something you can afford, it offers the best protection.

Whatever your home insurance needs may be, our knowledgeable agents on the Trusted Choice can help. We will assist you in identifying your home’s replacement cost, and locate a number of quotes from a variety of insurance companies, ensuring the policy you buy will offer the best protection at the most affordable rates. Contact us to be sure you’re not among those households that lack sufficient coverage.

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